Oxford Economics said on Monday that Angola’s rating is unlikely to improve over the next year, following Moody’s downgrade of its opinion on the evolution of the Angolan economy from Positive to Stable.
“All three major financial rating agencies have a Stable Outlook; considering this and the continued vulnerability to currency and oil price shocks, we believe that Angola’s rating is unlikely to improve in 2025,” write the analysts from the African department of this British consultancy.
In the note sent to clients, to which Lusa has had access, Oxford Economics wrote that “Moody’s decision follows the approval of the General State Budget for 2025 in November, which shows that the government is struggling to keep its spending under control, in the context of currency weakness and high inflation”.
The analysts point out that spending on subsidies and debt interest payments has been above projections, leading the Ministry of Finance to forecast a budget deficit of 1.5% in 2024, worse than the budget approved a year ago, which foresaw balanced accounts.
The note from Oxford Economics comes after financial rating agency Moody’s downgraded the outlook for Angola’s economy from Positive to Stable, keeping the rating at B3 due to the slowdown in budget consolidation and the high public debt.
“The decision to change the outlook to Stable reflects our expectation of a slower pace of fiscal consolidation than previously forecast, with the risk of a deterioration in the weight and servicing of debt due to the depreciation of the kwanza remaining high,” the analysts wrote in the note released on Friday night.
In the announcement of the decision, Moody’s wrote that the rating level remains at B3, below the investment recommendation line. This is in a context in which Angola is expected to continue to record slight budget deficits in the coming years despite stronger growth in Gross Domestic Product in the short term and favourable conditions in the oil sector.
“The debt-to-GDP ratio is expected to stabilise at a higher level than forecast, slightly below 60% of GDP, but still much lower than at the end of 2020, when Angola’s rating was Caa1,” Moody’s wrote, adding that “improvements in external vulnerability are also more limited than expected, with exchange rate volatility remaining high”.
The downgrade of the outlook for Angola means that Moody’s does not expect to raise or lower the country’s rating in the next 12 to 18 months. Although the risks of debt refinancing have fallen, the government continues to face a challenging debt profile, including significant bilateral debt payments.
This scenario shows that “the risks are balanced for the B3 rating level.” Regarding macroeconomic indicators, Moody’s predicts that Angola will grow by 3% this year and 3.3% in 2025, accelerating from the 1% recorded in 2023, and that public debt will be close to 60% of GDP by 2026.
The government’s primary budget deficit will be around 2.8% between 2024 and 2026, down from the 7% previously estimated, and revenues measured as a percentage of GDP will also fall.
Moody’s expects oil production to remain at the current level of 1.1 million barrels per day, but prices are expected to fall compared to 2023, influencing revenue for the state coffers.
“We anticipate a more gradual decline in the debt burden; from 2025, the debt-to-GDP ratio will remain only marginally below 60%, higher than our previous forecast of around 40%,” conclude Moody’s analysts.
